Companies Significantly More Optimistic After Third Wave of Corona

The logistics financing service provider JITpay sheds light on the economic situation in a blog. At the beginning of the year, the economy shrank more than expected, but now entrepreneurs are looking to the future with optimism not seen in two years. Especially the service sector and trade are looking ahead with confidence. At the same time, supply bottlenecks dampen this optimism.

By Dirk Mewis for JITpay

“The German economy is picking up speed,” describes Ifo President Clemens Fuest the current economic survey of his institute. The Ifo researchers have determined a level of optimism in German companies not seen in two years – thanks in part to progress in vaccination. The Ifo business climate index rose from 96.6 points last month to 99.2 points, as reported by the Munich economic research institute. Economists had only expected 98.2 points. Companies are also looking significantly more optimistic towards the coming months – especially in the service sector and trade.

In the manufacturing sector, however, sentiment only improved slightly, and the construction sector saw only a minor uplift. The issue of material shortages has worsened, explains Fuest. Currently, there are supply bottlenecks for many raw materials and intermediate products – partly due to pandemic-related problems in international trade.

Highest Value Since February 2020

In the service sector, the Ifo survey recorded the highest value since February 2020. Expectations in tourism and hospitality have exploded in May, explains Ifo expert Klaus Wohlrabe, as there is hope for a good summer business. The index also saw a significant increase in trade: retailers were more satisfied with their current business situation. Furthermore, according to Ifo, a “cautious optimism” has returned regarding expectations. “While wholesale continues to benefit from the good industrial economy, retailers hope for further easing,” said Ifo President Fuest regarding the survey, for which the institute surveys around 9,000 companies each month. They are asked to assess their current business situation and provide their expectations for the next six months.

According to the Bundesbank, the German economy is currently recovering rapidly after the recent Corona slump. The gross domestic product (GDP) is expected to increase significantly again in the second quarter. At the beginning of the year, however, GDP shrank more sharply than initially assumed due to the consumption slump caused by Corona – by 1.8 percent. The third wave of Corona has likely broken, and the mood in companies is rising in line with vaccination progress, commented KfW Chief Economist Fritzi Köhler-Geib on the development.

Impulses from China and the USA

However, the improvement in sentiment should still be interpreted with caution, warns chief economist Alexander Krüger from Bankhaus Lampe. Supply chain problems still exist, and more than before the crisis, the economy remains dependent on impulses from China and the USA. “In 2020, the problem was primarily weak demand; that has now reversed. Demand for semiconductors, for example, significantly exceeds supply,” states Gunther Kegel, President of the Central Association of the Electrical Engineering and Electronics Industry (ZVEI). According to a survey, 60 percent of ZVEI members therefore support the establishment and expansion of microelectronics production facilities to ensure supply security in Europe. Currently, the industry is facing procurement bottlenecks for intermediate products. Delivery difficulties exist, among other things, for microchips, plastics, steel, and copper. “We expect that the shortage in electronics will likely worsen in the coming weeks, and that our supply chains will normalize in the third or fourth quarter of 2021.”

In addition to the bottlenecks, tight transport capacities are also noticeable not only in the electronics industry, leading to higher costs. Despite the challenging conditions, ZVEI member companies are cautiously optimistic about 2021, expecting a production growth of five percent compared to 2020 and are almost back to last year’s level with a capacity utilization of 82 percent, according to Kegel.

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